CAPACITY BUILDING WORKSHOP ON HEALTH SYSTEMDEVELOPMENT

1

Health Care Financing;Objectives, Functions, and Options

Eastern Mediterranean Regional Office,World Health OrganizationDr. Hossein Salehi11 July, 2010Tehran. Iran

Introduction; Health spending

• Spending on health has been increasing world-wide including in EMR

• Advances in medical technology, higherl ti d id ’ t ti i

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population and providers’ expectations, incomegrowth, health system development are somedeterminants

• Increased inequalities in health spendingbetween and within countries

Investing in health has a high rate ofeconomic return

Share of World GDP allocated to health hasincreased from 3% in 1948 to 9.8% in 2008($5.8 trillion)

H lth i id d f f “h

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– Health is considered a form of “humancapital”• Affect individual productivity• Affects overall economic growth

– Health industry is relatively large and as aservice sector employs large share of laborforce

Financial barriers continues to be a major obstacleto access health care

Barriers to access health care:

– Cultural barriers

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– Political barriers

– Financial barriers• Fiscal space• Households’ capacity to pay

out-of-pocket

Health policies should target reducingout-of-pocket expenditures

• Push some households

Out-of-pockethealth expenditure

55

Push some householdsinto poverty

• Reduce expenditureson other basic needs

• It is a barrier; maycause households toforgo seeking healthcare and suffer illness

Risk of financialcatastrophe

Risk of financial catastrophe and impoverishmentdrops substantially with OOPs less than 20%

%

3.00%

3.50%

4.00%

4.50%Financial Catastrophe

Impoverished

6

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

<10% 10-20% 20-30% 30-40% 40-50% 50-60% 60-70% 70%<

Share of Out-of-Pocket Spending on Health Care

TUN

IRN

LBN

LBY

SAU

OMN

BHR

KWT

ARE

QAT

Share of Out-of-Pocket Total Health Expenditure per Capita

58%

2008

7 0 500 1000 1500 2000 2500 300

AFG

PAK

DJI

SDN

YEM

EGY

SYR

MAR

JOR

IRQ

0%20%40%60%80%

There are largeinequities in healthspending in EMR

SYSTEM BUILDING BLOCKS

Responsiveness

GOALS OF HEALTH SYSTEM

Coverage

HEALTH SYSTEM CONCEPTUAL FRAMEWORK

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Governance

Health workforce

Financing

Health

Financialprotection

g

Providerperformance

Info

rmat

ion

Sup

port

Equity

Health technology

Ser

vice

Del

iver

y

Efficiency

Quality &Safety

SYSTEM BUILDING BLOCKS

Responsiveness

GOALS OF HEALTH SYSTEM

Coverage

HEALTH SYSTEM CONCEPTUAL FRAMEWORKHealthcare Financing

• Collection

• Pooling

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Governance

Health workforce

Financing

Health

Financialprotection

g

Providerperformance

Info

rmat

ion

Sup

port

Equity

Health technology

Ser

vice

Del

iver

y

Efficiency

Quality &Safety

Pooling

• Purchasing

Financial Protection

Functions Objectives

raise sufficient and sustainable revenuesin an efficient and equitable manner toprovide individuals with both a basicpackage of essential services and financialprotection against unpredictablecatastrophic financial losses caused byillness and injury

Collection

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illness and injury

manage these revenues to equitably andefficiently pool health risks allowing forsubsidies from healthy to unhealthy, richto poor, and productive workers todependents

assure the purchase of health services isstrategic and both allocatively andtechnically efficient (for whom to buy,what services to buy, from who to buy,and how to pay)

Purchasing

Pooling

% Costcovered

Moving towards Universal Coverage

11

PrepaymentExpenditure

Breadth (Population covered)

Depth & Quality(services covered)

CurrentPooled fund

% Costcovered

Include other

Moving towards Universal Coverage

12

PrepaymentExpenditure

Breadth (Population covered)

Depth & Quality(services covered)

CurrentPooled fund

Extend to non-covered

Reduce out-of-pocketpayment

services

Complete Universal Coverage is not possibleor optimal

Total Health Expenditure % Costcovered

1313 Breadth ( population covered)

Depth & Quality(services covered)

Pooled Funds

Universal Coverage to be understood as; coveringall, for most services, at reasonable cost

Total Health Expenditure% Costcovered

1414 Breadth: (population covered)

Depth & Quality(services covered

Pooled Funds

• NATIONAL HEALTHSERVICE (e.g. UK,A stralia GCC

HEALTH Financing SYSTEM MODELS

• Provincial / RegionalGovernment SinglePa er S stem (e g

•Direct payment (out-of-pocket) at point of service( e.g., prevailing system in most low income countries)

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Australia, GCCcountries, Finland, Italy,Greece, Sweden,…)

Payer System (e.g.,Canada, Spain)

• SOCIAL HEALTHINSURANCE –Bismarckian System(e.g., Germany, Japan,France, Korea, Turkey )

• Voluntary PrivateInsurance Model (e.g.,US ?)

MIXED SYSTEM

Micro Insurance

100

200

300

400

500

600

700

800Per Capita Total Health Expenditure; Iran 1995-2007 I$

Funding by itself may not guarantee socialhealth protection for all

1616

0.000

0.500

1.000

1.500

2.000

2.500

3.000

1995, 1996, 199,7 1998, 1999, 2000, 2001, 2002, 2003, 2004, 2005, 2006, 2007,

Perc

enta

ge

0

Catastrophic Health Expenditure and impoverishment; Iran 1995-2007

1000000

1200000

Iran

There is high degree of correlation between

Out-of-pocket and Government spending

[- ■ - per capital out-of-pocket payment, -♦- per capita government expenditure]

2000-Constant Prices in Local Currency, 1995-2008

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0

200000

400000

600000

800000

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

Comparison of Mean and Spread of Per capitaIncome in Developed and Developing Countries

σσ >

P it IDevelopingC t i

18

µ

µ

Per capita Income

Per capita Income

Countries

DevelopedCountries

Health Profile and Health Financing system

Acute Illness

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Healthy withRisk FactorsHealthy

Chronic/Disable

SHI

Health Profile and Health Financing System

Acute Illness

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Healthy withRisk FactorsHealthy

Chronic/Disable

PHC

CAPACITY BUILDING WORKSHOP ON HEALTH SYSTEMDEVELOPMENT

21

Health Care Financing;Objectives, Functions, and Options

Eastern Mediterranean Regional Office,World Health OrganizationDr. Hossein Salehi11 July, 2010Tehran. Iran

% Costcovered

Include other

Moving towards Universal Coverage

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PrepaymentExpenditure

Breadth (Population covered)

Depth & Quality(services covered)

CurrentPooled fund

Extend to non-covered

Reduce out-of-pocketpayment

services

Financial catastrophe is a problem in lowand middle income countries of EMR

3.0%

3.5%

4.0%

4.5%

5.0% Financial catastropheImpoverished

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0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

I.R. Iran -2007

Jordan -2006

Morocco -2001

Palestine -2004

Tunisia -2005

Transmission Mechanism between Health andIncome; a two way interplay-micro view

1- Buys more health services2- Improves life style3- reduces job related risks4- Buys more education

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Health1-Improves productivity2-Reduces medical spending3-Increases labor supply

(quantity & intensity)4-Reduces time preference5-Increases saving6-Reduces fertility

Income

NHSNHS SystemsSystems

Financed through general revenues, covering whole population,Financed through general revenues, covering whole population,care provided through public providers or contractingcare provided through public providers or contracting

Strengths

– Pools risks for whole

Weaknesses

– Unstable or limited

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– Pools risks for wholepopulation

– Relies on many differentrevenue sources

– Single centralizedgovernance system hasthe potential foradministrative efficiencyand cost control

– Unstable or limitedfunding due to nuancesof annual budgetprocess

– Often disproportionatelybenefits the rich

– Potentially inefficientdue to lack of incentivesand effective publicsector management

Social Health InsuranceSocial Health Insurance

MMandated for specific groups, financed through payroll taxes, semiandated for specific groups, financed through payroll taxes, semi--autonomous administration, care provided through own and/or contractingautonomous administration, care provided through own and/or contracting

Strengths• Additional health revenue source

A ‘b fi ’ h b

Weaknesses• Poor are often excluded unless

subsidized by government

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• As a ‘benefit’ tax, there may bemore ‘willingness to pay’

• Removes financing from annualgeneral government appropriationsprocess

• Generally provides coveredpopulation with access to a broadpackage of services

• Can effectively redistributebetween high and low risk andhigh and low income groups incovered population

subsidized by government• Potential negative impact on

employment• Administrative cost can be high• Can lead to cost escalation unless

effective contracting mechanismsare in place

• Poor coverage for preventiveservices

• Often needs to be subsidizedfrom general revenues

Private Health InsurancePrivate Health Insurance

Financed through private voluntary contributions to forFinanced through private voluntary contributions to for-- and nonand non--profitprofitinsurance organizations, care reimbursed in private and public facilitiesinsurance organizations, care reimbursed in private and public facilities

Strengths

• As a prepayment and riskli h i i ll

Weaknesses

• Associated with high administrativecosts and profit (up to 40%)

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pooling mechanism is generallypreferable to out of pocketexpenditure

• May increase financialprotection and access to healthservices for those able to pay

• When an “strategic purchasing”function is present it may alsoencourage better quality andcost-efficiency of health careproviders

costs and profit (up to 40%)• It is generally inequitable• Applicability in LICs and MICs

requires well developed financialmarkets and strong regulatorycapacity

• Has the potential to divertresources and support frommandated health financingmechanisms

Financing & Provision of health care;Who pays? Who provides?

ProvisionPublic Private

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Public

Public

Private

PrivateFina

ncin

g

Public Financing & Private Provision

•Solidarity in financing•Competition and Choice in provision